Smooth subsurface problem
Because you are in edit mode? 
If you want to affect object by modifier in edit mode press triangle icon.
For more informations about modifier see manual.



What is this triangle icon? Blender Manual sayes:

Show on cage (vertices-triangle icon) – Meshes only

Depends on the previous setting, if enabled, the modified geometry can also be edited directly, instead of the original one.

Warning

While it shows edited items in their final, modified positions, you are still actually editing original data. This can lead to weird and unpredictable effects with some tools, and should be disabled whenever you need to perform complex or precise editing on the mesh.